BEIJING (MarketWatch) -- China Citic Bank Corp. (0998.HK), the seventh-largest Chinese lender by asssets, warned Wednesday of severe risk in China's real estate market this year and said it plans to cut lending to the sector, in a sign banks could start to feel the impact of government efforts to cool the property market.

"Citic Bank relatively clearly sees that real estate risk this year is severe," said Shi Yuan, the general manager of the bank's risk management section, on a quarterly teleconference. He noted Chinese Premier Wen Jiabao has repeatedly stressed the importance of continuing with the government's property-tightening measures, such as limiting home purchases and raising down-payment requirements.

The remarks come amid signs the government's effort to bring stubbornly high home prices under control are having more effect, and amid concern a drop in prices could put financial pressure on banks.

"We especially are paying attention to risks in the funding chain for developers. We believe as tightening continuously gets stronger, the true real estate risks will appear," Shi said.

Citic Bank aims to reduce its real-estate loans this year by a third, he said. "We are being more prudent, and the risk is controllable."

In a sign of the impact of the tightening measures, China Vanke Co. (000002.SZ), the country's largest property developer by market share, said Tuesday its property sales in April rose 1.3% from a year earlier to CNY7.9 billion, slowing sharply from 47.8% growth recorded in March.

"The property tightening measures have made a clear impact on the market with a slowdown in transactions, and new homes continue to enter the market which lead to some inventory pressure," Vanke board secretary Tan Huajie said Tuesday in a statement.

China may further expand home purchase limits to new cities to prevent speculative capital from flowing into third- and fourth-tier cities, the Shanghai Securities News reported Wednesday, citing an unnamed source close to the Ministry of Housing and Urban-Rural Development. China could also extend the property-tightening measures currently in place in Beijing to other cities, the paper said, citing the source.

Government officials have repeatedly expressed concern about housing prices, which have remained high despite a recent slowdown in transaction volumes. Wen and President Hu Jintao said separately over the weekend that the central government remains determined to bring down prices, according to the Xinhua News Agency.

The China Banking Regulatory Commission said last month it ordered banks to launch a new round of stress tests on property loans and to step up efforts to prevent credit risks. It said however the tests don't represent a judgment on the real-estate market. In March, CBRC's assistant chairman, Yan Qingmin, said earlier stress tests found the maximum tolerable fall in real-estate prices was 30%. Prices of newly built homes in 49 of the 70 large and medium-sized Chinese cities covered by a government survey rose in March from the previous month, down from 56 cities in February and 60 in January, the National Bureau of Statistics said last month.

Separately, the CBRC said Tuesday it has no plan to issue new regulations governing property trusts in May, refuting earlier reports it may impose further tightening controls on property trusts to curb risks in the real-estate sector. The regulator said it has been consistently asking trust companies to conduct property-related business while exercising proper risk management.

Many property developers have turned to property trusts for financing in the face of lending curbs and restrictions on developers' capability of raising funds from the stock market, but there has been increased regulatory scrutiny on such activity as the authorities seek to contain credit risk.

Also Wednesday, Citic Bank's general manager for financial planning, Wang Kang, said the bank will face pressure in the medium and long term in efforts to continuously replenish capital, but that new regulations on capital adequacy ratios issued by China's bank regulator Tuesday won't have a short-term impact on the bank.

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